Online grocery stores are looking to gain favour with customers by offering onions at about half the rate that neighbourhood stores are charging. When Reliance Retail started selling fruits and vegetables at prices lower than market rates and talked about eliminating middlemen, the then Mayawati government in Uttar Pradesh shut the stores, calling it a law and order problem.

Eight years later, online grocery stores are looking to gain favour with customers by offering onions at about half the rate that neighbourhood stores are charging.

Companies such as Localbanya, MeraGrocer, FreshFalSabzi and GrocerMax are offering onions at Rs 40-69 per kilogramme against Rs 80 and more in the shops. They’re able to do this through better logistics and by cutting out middlemen.

“The low onion prices are a result of a mix of marketing strategy and procurement,” said Localbanya chief executive officer Karan Mehrotra. “We do take a hit on margins at times for the benefit of customers.”

The online store’s model is partly inventory-led. It also uses just-in-time procurement, thus getting “very good deals” at times, he said. “We do like to pass on these benefits to our consumers.” Localbanya started a grocery subscription plan this week.

FreshFalSabzi, another Delhi-based startup retailer of fresh fruits and vegetables, is selling onions at Rs 40 per kg.

“We are selling onions at a loss but have reduced marketing spends, including spends on local ads and sponsorships,” said Rajesh Gupta, chairman of the RSND Group-promoted FreshFalSabzi, which has hired television actress Sakshi Tanwar to promote the site. It gets vegetables directly from farms and is selling them on a no-profit-no-loss model at least for now, Gupta said.

While onion prices have risen after unseasonal rain a few months ago and thereafter due to a dry spell to Rs 60-65 in the wholesale market from Rs 35-50 earlier, prices of other essential vegetables and fruits such as potatoes, brinjals, radishes and carrots too advanced. Online prices are said to be at least 10% cheaper.

Gurgaon-based online grocer MeraGrocer ran a 30% discount promotion from Wednesday to Sunday. Some items were at less than the wholesale price - onions were available for Rs 42 per kg. The campaign has been extended to this week for the vegetable.

“The whole campaign was around the concept of cheaper than wholesale price - Azadpur mandi se bhi sasta (Cheaper than Azadpur mandi),” said Saurabh Chadha, co-founder of MeraGrocer. The company has decided to offer daily discount deals, he said.

While online grocers aren’t making money, most are flush with funds and spend heavily on marketing and promotions. Industry estimates suggest that food and grocery make up close to three-fourths of the country’s overall retail spend. According to a report by researcher Kantar Worldpanel, ecommerce for fast-moving consumer goods (FMCG) will increase 47% to $53 billion by 2016, up from $36 billion in 2014.

Grocermax.com, an online grocery serving Gurgaon and shortly to extend its offerings across the National Capital Region (NCR), sources widely to try and keep a lid on prices.

“We buy onions directly from cropping areas in Maharashtra from agents who bid in the auction. We do not speculate but we dis-intermediate all middlemen and keep our margins to single digits,” said K Radhakrishnan, Grocermax.com co-founder.

Wastage is sought to be kept at a minimum. “We have driven the selling price down to Rs 69.50 per kg for 45-55 mm diameter onions, whereas similar quality is selling at Rs 80 to 85 (in the open market),” he said. “Customers are sometimes unaware that traders mix small-sized onions which they end up buying.”

Some online stores are toying with the idea of selling imported onions. “But we will have to see if they compare well in taste and texture with the Indian Nasik Red variety, which the farmers of Maharashtra expertly grow,” Radhakrishnan said.

Big Basket seeks to cut out intermediaries to keep prices low, said co-founder Vipul Parekh. “Our prices are always competitive as compared to the offline market because we procure straight from the farmers, cutting out the middlemen,” he said.

FreshFalSabzi.com’s Gupta said the minimum order value is Rs 249 and it doesn't sell more than 2 kg of onions to a customer on a given day to prevent hoarding.

“For other vegetables, we ensure at least 10% discount compared to the retail price elsewhere,” he said. Some sites engage in cross-subsidies. The founder of one online grocery said prices of lemon, beetroot and lettuce have been raised to keep onion rates down.